Details Needed On Novell's Allegedly Soaring Linux Sales

from the fuzzy-math dept

Slashdot is linking to a story supposedly showing that Novell's Linux business has seen amazing growth in the nine months since they signed a controversial patent deal with Microsoft. "The affect on sales year over year, for Novell's first three quarters of our fiscal year, which ends Oct. 31 -- our Linux business was up 243 percent year over year," said Novell exec Justin Steinman. But so far, at least, this growth doesn't appear to be reflected in Novell's financial results. If my math is right, Novell's revenue for "Linux platform products" totaled $32 million in the first three quarters of 2006, while the total for the first three quarters of 2007 is $53 million. That's a healthy 65 percent growth rate, but it's a long ways from 243 percent. (Novell's Open Enterprise Server is also based on a Linux kernel, but revenues from that product line have been flat at about $45 million a quarter, which would make Novell's overall Linux growth rate even smaller). What accounts for the growth we are seeing? Steinman says that customers are beating a path to his door because people want to "pick the Linux that works with Windows." But a more likely explanation is that customers are just redeeming the tens of millions of dollars in vouchers that Novell sold to Microsoft as part of last year's patent deal. Novell says it has gotten $100 million in business through its Microsoft partnership. That's more than twice as much revenue as Novell received from "Linux platform products" for all of 2006, suggesting that almost all the growth we've seen so far is probably a result of customers redeeming those vouchers—and it's not clear whether Microsoft is selling the vouchers at full price or at a steep discount. Maybe we'll finally see spectacular financial growth when Novell releases its its fourth quarter results later this year, but it would have been helpful if Novell or PC World had been clearer about how they're measuring that 243 percent sales increase.

Confusion

Tim,

I think you are confusing Linux invoicing with recognized revenue. Linux invoicing for the first 3 quarters of FY07 was $158 million. I do not have the invoicing number for the first 3 quarters of FY06, but considering the invoicing result in 1Q07 was 650% higher than 1Q06, I would venture to say that 243% y/y growth for the first three quarters is probably close.

Another point to think about is the declining contribution from the Microsoft deal. Linux invoicing attributable to Microsoft is $73 million, $18 million and $14 million for 1Q07, 2Q07 and 3Q07 respectively. Sure there was an initial pop in 1Q07, but growth seems to be much more organic now.

Thanks for commenting, Amar. If your numbers are right, that suggests that two-thirds of Novell's invoicing are attributable to Microsoft vouchers, and only $53 million is attributable to other sources. That sounds to me more like a one-time spike attributable to the sale of Microsoft's vouchers than a sustainable sales boom. But as I said, more details would be helpful.